Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

When buying the dip doesn’t work: An analysis of the dot-com crash

endlessmetrics.substack.com

Post reply on HN
Print view View original

21–30 of 408 posts

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#21

Post by candiddevmike »

tyre wrote: post #16
fny wrote: post #10

Look at a chart of the S&P 500 from 1920 to 2008 and you'll notice something rather curious: the stock market has gone parabolic ever since the financial crisis. What made this period so unique? Tremendously low interest rates coupled with quantitative easing dissuaded capital from financing the real economy and instead encouraged herding and levering up in the financial economy for returns. At ever dip, it was an op…

> The COVID fiscal canon blew growth and inflation skyward. This is not true and has wrongly given credit to people who have said, since 2020, that COVID relief would cause inflation. Our current inflation is driven by supply chain issues (unrelated to COVID relief) and rising oil (unrelated to COVID relief.)

From what I've read, our current inflation is due to combo of inflated asset prices causing mortgages and rents to skyrocket along with corporate greed raising prices "because of inflation".

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#22

Post by GlennS »

throw0101a wrote: post #9

Nick Maggiulli: > Logically, it seems like Buy the Dip can’t lose. If you know when you are at a bottom, you can always buy at the cheapest price relative to the all-time highs in that period. However, if you actually run this strategy you will see that Buy the Dip underperforms DCA over 70% of the time. > This is true despite the fact that you know exactly when the market will hit a bottom. Even God couldn’t beat do…

> This is true despite the fact that you know exactly when the market will hit a bottom. Even God couldn’t beat dollar-cost averaging.

I'm a bit unconvinced by the studies that say this, because I don't think the "buy the dip" strategy they're talking about is the same one that people are running.

The studies describe waiting for a low point in a given year (or even across multiple years!) then lumping in all your money then.

Whereas I think what people actually mean when they talk about buying the dip is shifting their dollar cost averaging buy-in by days, weeks, or at most a few months, while they wait for the market to get spooked.

I don't do this at the moment. I had a "wait for the US president to say something stupid" strategy which seemed to work for a while, but of course I don't really have enough evidence to back that up.

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#23

Post by SamReidHughes »

tyre wrote: post #16
fny wrote: post #10

Look at a chart of the S&P 500 from 1920 to 2008 and you'll notice something rather curious: the stock market has gone parabolic ever since the financial crisis. What made this period so unique? Tremendously low interest rates coupled with quantitative easing dissuaded capital from financing the real economy and instead encouraged herding and levering up in the financial economy for returns. At ever dip, it was an op…

> The COVID fiscal canon blew growth and inflation skyward. This is not true and has wrongly given credit to people who have said, since 2020, that COVID relief would cause inflation. Our current inflation is driven by supply chain issues (unrelated to COVID relief) and rising oil (unrelated to COVID relief.)

Working class wages have increased, and that is clearly because of Covid relief. Or other Covid-related policies like halting immigration.

(I should be clear, this is still supply-side, but related to Covid relief. "Stimulus" money spent unproductively by the government is also supply-side.)

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#24

Post by chii »

nathanvanfleet wrote: post #18

Sad to think that investing in the stock market, which I have only been able to financially over the last 5 years might have been much riskier than I might have previously thought. What I previously thought as "okay I just leave it in the stock market for a bit of time to recoup" is something I am now realizing would likely have to be 10+ years. It's kind of funny because I was getting shaky about having money in the…

you have to take risk to earn returns. Sometimes that risk actually eventuates, and you have to either keep going, or take the loss.

That's why you must know the time horizon for your investments - if you know you need the money "soon", you cannot actually invest in the stock market.

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#25

Post by mwattsun »

I lived through the dot-com crash and got out safely after hearing something so ludicrous that I had to ask myself "How insane does this industry have to be for someone to think they can build a high growth internet company out of home cement delivery?" My memory may be playing tricks, but it was something like that.

After 2008 I became interested with crashes throughout history. There are so many fascinating little details that added up to one giant mess.

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#26

Post by bequanna »

chii wrote: post #24
nathanvanfleet wrote: post #18

Sad to think that investing in the stock market, which I have only been able to financially over the last 5 years might have been much riskier than I might have previously thought. What I previously thought as "okay I just leave it in the stock market for a bit of time to recoup" is something I am now realizing would likely have to be 10+ years. It's kind of funny because I was getting shaky about having money in the…

you have to take risk to earn returns. Sometimes that risk actually eventuates, and you have to either keep going, or take the loss. That's why you must know the time horizon for your investments - if you know you need the money "soon", you cannot actually invest in the stock market.

You have to take calculated risks to earn returns. FOMO at your own risk.

If you are 30 and don’t need the money you put in SPY until 70, don’t sweat it. You’ll be fine.

But let’s not pretend blindly taking risk is OK because some return is expected. Time horizon and some relative valuation context is important.

Buying into the stock or housing market at extreme historic levels of valuations like those in late 2021 and now GREATLY reduces your expected return over 5/10 years.

If you don’t have the (extremely) long view, expect to lose some sleep watching your net worth over the next couple years.

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#27

Post by ouEight12 »

tyre wrote: post #16
fny wrote: post #10

Look at a chart of the S&P 500 from 1920 to 2008 and you'll notice something rather curious: the stock market has gone parabolic ever since the financial crisis. What made this period so unique? Tremendously low interest rates coupled with quantitative easing dissuaded capital from financing the real economy and instead encouraged herding and levering up in the financial economy for returns. At ever dip, it was an op…

> The COVID fiscal canon blew growth and inflation skyward. This is not true and has wrongly given credit to people who have said, since 2020, that COVID relief would cause inflation. Our current inflation is driven by supply chain issues (unrelated to COVID relief) and rising oil (unrelated to COVID relief.)

> rising oil

Monthly inflation numbers have been > 5% since May 2021. Oil didn't exceed 2018 $s until will into October 2021.

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#28

Post by pdevr »

Index investing will work, if you live for a long time. The problems are, we do not live infinitely, and the average person does not have the stomach to see their investment going down for years, unless that investment is small enough to tolerate (in which case it is not enough to make a big difference, for most people).

What I think will work - not claiming that it will actually work - based on history:

Invest in companies that are generating a lot of cash and a lot of profits, have a moat/USP/technology advantage, and are at the forefront of where the world is headed in terms of trends, or at least are following a sustainable trend. Yes, you need to identify the company. Yes, you need to take decisions: INTC vs AMD (1980s), YHOO vs GOOGL (2000s). But it gives you a much better chance of seeing a profit in your lifetime than index investing. You can still index invest, but only an amount you can "set and forget". This gives you the best of both worlds.

Edit: (1) What I posted above is for long periods of no movement of stocks except downwards, as I believe we are going to see. (2) Index investing will work eventually and that is what I said above as well. The point is, the time period required for that. (3) I thought of posting this on my blog tomorrow, but it is past midnight here, and I wanted to see what HNers think. It is interesting to see the different opinions. Time may change some of your opinions (not about "index investing will not work" - that is not what I said above - but rather, about the protection offered by diversification, and what diversification actually means. Also, quoting this part again: "the average person does not have the stomach to see their investment going down for years, unless that investment is small enough to tolerate (in which case it is not enough to make a big difference, for most people)").

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#29

Post by chii »

fny wrote: post #10

Look at a chart of the S&P 500 from 1920 to 2008 and you'll notice something rather curious: the stock market has gone parabolic ever since the financial crisis. What made this period so unique? Tremendously low interest rates coupled with quantitative easing dissuaded capital from financing the real economy and instead encouraged herding and levering up in the financial economy for returns. At ever dip, it was an op…

> dissuaded capital from financing the real economy and instead encouraged herding and levering up in the financial economy for returns.

i don't really agree with this - the money used to purchase financial products don't disappear, because for every product bought, there was a seller. This seller now has cash, which would be invested elsewhere.

The only concern is low interest rates, which makes the hurdle for any investment lower thus making it easy for malinvestments to occur; In hindsight is easy to make judgements on what is a malinvestment, but not so easy at the time.

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#30

Post by kmonsen »

300bps wrote: post #13
kmonsen wrote: post #11

Earlier quoted context omitted.

I honestly think that’s not the main reason we have inflation now. Since every country in the world is seeing similar inflation I would think it’s supply side and not something any central bank can fight. I’ve always been Keynesian, but it faces the same problem as everything else, you need to be able to predict the future to do it well.

Fed balance sheet is about $9 trillion. This article gives details on $5 trillion in government stimulus. https://www.nytimes.com/interactive/2022/03/11/us/how-covid-... To put those numbers in perspective, the market cap of the entire S&P 500 is about $40 trillion. I hear what you’re saying about supply-side inflation but you don’t think flooding the economy with so much unearned money might be driving up demand a b…

Oh I’m not saying the feed is not causing inflation at all. I think the primary driver is supply side, but clearly there is more going on.

And that I’m not so sure anymore if federal banks are net positive.

Post reply on HN